With a critical mass of users now to its name, Singapore's Grab has begun to scale back the subsidies that its payments app gives to merchants.
It is a major turning point for the ride-hailing app company's payments division and reassuring for its investors who are hungry for evidence that it is on the path towards profitability.
Grab’s growing platform also makes higher-margin financial services a viable business for the firm. GrabPay is building out its insurance and lending services as it gathers financial licenses across Southeast Asia.
“We have reached a scale where we can monetise our data and monetise our user base,” Ooi Huey Tyng, managing director of GrabPay Malaysia, Singapore and the Philippines, told FinanceAsia in an interview.
GrabPay has inundated businesses across Southeast Asia with promotions in order to attract new users. It is in a race with other e-wallet providers including Indonesian app Gojek’s GoPay to to gather consumers to its app. “It is a war,” Ooi said.
To date, merchants have reaped the benefits of the inter-app competition; the app-funded promotions have provided a generous fillip to sales at no extra cost to businesses.
But the tables are starting to turn.
Now, when GrabPay users buy a coffee using a Mondrian style QR code on their smartphones, in some cases it will be the merchant that funds the 10% to 15% discount, Ooi said. Some shopkeepers, it seems, are willing to pay the subsidy as they want access to the consumers that are flocking to Grab’s platform.
Grab is cagey about the total number of consumers using its payments app and only offers percentage changes in the numbers. However, it’s clear that the app is increasingly popular.
In the first six months of 2019, GrabPay’s monthly average users jumped 65%. As of November, the Grab app had reached more than 166 million downloads.
GrabPay kicked off the pilot project to cut back subsidies in October and has close to 500 outlets participating in the scheme, just over half of which are in food & beverage. To be sure, this represents less than 0.1% of the approximate 600,000 merchants using GrabPay as of September, but the number is swelling said Ooi.
Investors are keen to understand how ride-hailing companies will become profitable. Many of them were disillusioned by the financial and stock market performance of Grab’s loss-making US peers, Uber and Lyft. This payments demo goes some way towards showing that the end is in sight to the cash burn associated with the spread of payments platforms in Southeast Asia.
Also, Southeast Asia’s ride-hailing apps do have an advantage over their US peers in that they offer services extending far beyond mobility – and from an early stage in their development too. Within the Grab ecosystem some of these services, such as food delivery, have managed to scale back subsidies even more quickly.
They are also growing fast in underpenetrated markets and introducing products seen for the first time by the regions consumers.
Grab said on Thursday it had launched GrabPay Card, Asia’s first numberless card in partnership with Mastercard, that is designed to avert the prospect of theft of personal and financial information.
Ooi declined to give a date for when she expects GrabPay to climb out of the red and was quick to point out that the division is still in growth mode and key to the broader collection of Grab services. “It's not about turning a profit immediately," she said.
Payments are in some ways the glue that binds operations within Grab’s ecosystem together. It estimates that around 40% of consumers use more than one service on its platform and a unifying payments system smoothes that experience.
Grab is constantly looking at how to optimise its capital structure and has considered spinning off its financial services arm, Grab Financial Group, which oversees GrabPay and the company’s insurance and lending ventures, and raising capital specifically for the new unit.
“That is something that we've looked at,” said Ooi, who declined to elaborate on future plans.
Grab is valued at around $14.3 billion by venture capital database CB Insights and is in the midst of a series-H funding round. The firm aims to raise $6.5 billion by the end of the year.
The continuing push for hegemony in mobile payments across the Asean bloc of countries is not without risk. GrabPay and Gojek’s GoPay have been locked in competition to onboard merchants to their respective QR standards and payment platforms for years, which is pushing back the date they can both breakeven.
Evolving regulation is also a key risk. Governments in the region are rolling out nationwide QR code standards in an effort to streamline digital payments and ensure interoperability, which could allow new competitors to swiftly build out rival offerings.
Until recently, e-wallet users had to scan a code specific to their app provider. A national QR standard would eliminate the need for merchants to have multiple codes for different payment platforms.
“We are at an inflexion point,” Ooi said. “E-wallet players are already acquiring [QR standards] on their own but governments want them to adopt a common standard and combine.”
Last month, GrabPay became the first e-wallet to adopt the Malaysian government’s DuitNow QR code implemented by the central bank.
While Grab continues to grow its payments arm, it is also expanding into higher-margin financial services such as lending and insurance.
However, the pace of progress will depend on regulators as Grab needs to win financial services licenses across Southeast Asia to expand its product offerings.
Grab launched its eponymous financial platform in 2016 and has accrued e-money licenses in Indonesia, Thailand, Malaysia, Singapore, the Philippines and Vietnam. That number is unchanged from January, when FinanceAsia spoke with Grab Financial Group senior managing director Reuben Lai.
The number of lending licenses has also been static at three since January, despite Grab’s push for a license in all ten Asean countries. “We feel pretty confident that we should [...] have access to Asean by next year,” Lai said in January.
These three lending licenses – difficult to attain and highly sought after – nonetheless put Grab in a strong position to capture a significant chunk of a quickly expanding market.
Digital lending from non-bank entities in Southeast Asia has reached $23 billion this year – a figure expected to exceed $110 billion by 2025, according to Temasek’s 2019 forecast.
Grab started a micro-loans to small businesses initiative in March, while its pay later programme, launched as a pilot in Singapore in July, has also taken off. Users have 30 days to repay their debt before facing fines and a freezing of their account.
Alternative lenders like Grab are radically altering a banking process that previously took days and rejected many applicants.
“I’m really proud that the whole process is so simple,” Ooi said of Grab’s driver lending programme, which enables drivers to get loans within two minutes from their smartphones.